I have recently seen articles in Credit Union Times about the need for credit unions to increase fee income. Let's take a look at one source of fee income: credit cards. I am all too familiar with credit union card programs and fee structures as I constantly review numerous facets of credit card program structures. I sometimes cringe when I see the credit card disclosures of credit unions and often wish I had the time to call each CEO to share this information.
In a time when credit unions are still being faced with the issue of keeping or outsourcing the credit card portfolio, how many credit unions actually dig deep to review the fee income potential of the card program? Yes, I am aware and fully agree that credit unions maintain the philosophy of minimizing fee income to the members, however as the highest risk product, the credit card must be treated as a different animal.
Find a credit union within your state that has their program managed by a "bank" and check out the credit card disclosure on the Web site. Some "outside managed" programs have become more credit union friendly and specifically designed to maintain the credit union philosophies, but I have run across very few. It may surprise you to find late and overlimit fees ranging from $29-$39 based on balances, cash advance rates and fees that are typical of banks, reduced grace periods, etc.
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We want members to use YOUR card. Focus on just three key card fees: Late, Overlimit and Return Check, update the fee amounts and adjust the system parameter settings. In a time when most bank issuers have tiered fees, the reality is most are averaging $39 for balances over $100 (which covers about 60% of a portfolio). The credit union average is now $20-$25, which is still much better than banks. Many credit unions have failed to update their credit card fee structures and maintain the fees common in the early 1990s: $5 to $15. Credit card fee income should represent 12%-15% of the card program's total revenue (the other income being a combination of interchange and finance charges). The reality is that many credit unions have less than 2% of card program revenue coming from fee income. No wonder so many credit unions are wondering about the lack of profitability of their programs.
How many of you are still charging $10-$15 for late and overlimit fees? How many (and yes, there are some) are charging a "percentage" of the minimum payment due as a late fee? It is also ironic how fees vary by state and region (with California being the exception due to the California Financial Code). Credit unions love to see what the big guys within their state are charging and tend to use those as their standard. You will see that most larger credit unions are assessing late and overlimit fees of $20-$25.
Are you still giving members 10 or 15 days before a late fee is assessed? In today's market, reducing the fee assessment parameter to five days is much more fiscally responsible to the credit union as well as an aid to reduce delinquency. This is still more competitive than bank issuers, which have a zero tolerance for late fee assessment.
Overlimit fees are another area of increasing fee income with minimal impact to the members. Is the fee being assessed at the time of occurrence or at the statement cycle date? By making a small parameter change to have the fee assessed at the time of occurrence can dramatically increase the amount of overlimit fee income.
Are you allowing your members to exceed their credit line 5%-10% before assessing an overlimit fee? Is this being confused with the overlimit "authorization" parameter? The authorization parameter and fee assessment parameters are two completely different issues. Think of the "courtesy pay" concept with checking accounts: the credit union will pay checks and overdraw the checking account, and a convenience fee will normally apply. The same holds true for credit card overlimit situations: allow qualified cardholders to exceed their credit line by a minimal percentage to avoid any potential embarrassment of a declined transaction, but assess the fee for courtesy of doing so.
Why would a credit union assess a cash advance fee or a cash advance APR? Cash advances have no grace period, therefore interest accrues from the date of the advance. We tend to be very lenient with potential late and overlimit fees and assessment criteria, yet why charge the member to utilize the cash advance feature? Cash advances can be good for a program and most members are wise enough to realize that balance transfers are considered cash advances. Although most credit unions waive the fee for balance transfers, wouldn't it be ideal to squash any confusion and just advertise NO CASH ADVANCE FEES? Cash advances should be encouraged as they increase the finance charge income. Don't bog down this function with fee barriers.
As far as statement copy fees, plastic replacement fees, overnight shipping fees, my question is this: why? Most of these fees require manual intervention by the staff and in the hectic operational world of credit unions these fees are most often not collected. Why deter acceptance of your card when the fee is so minimal and inconsistent in collection? We realize these fees are often imposed for the handful of abusers: members which are forever losing their cards, or requesting receipt and statement copies. However a slight disclosure update outline a generic term of "may" assess a fee for such instances.
Making adjustments in the three key credit card fee income categories (overlimit, late and return check), there should be no reason to burden the program or disclosures with a myriad of fees. There are credit unions doing well in managing their fee income, however the majority of credit unions could use an overhaul in this area.
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